New FX trading standard sees slow adoption

Despite its extension to FX last year, market participants acknowledge it is likely to be some time before they feel the full impact of the liquidity-enhancing trading enablement standardization initiative (TESI).

TESI was developed to promote an open standard for the
enablement, permissioning or configuration of dealers and their
clients across external electronic trading platforms and
internal single-dealer platforms.

The initial focus was on fixed income, but attention later
turned to FX and getting the multibank venues on board.

In July 2014, the FIX Trading Community – an
industry-driven standards body established in 1998 to address
the business and regulatory issues impacting multi-asset
trading – extended TESI to include foreign-exchange
client enablement for FX trades, including spot, forwards,
swaps, options and NDFs.

According to Sassan Danesh, co-chair of the FIX Trading
Community OTC products committee, the standard helps reduce
errors and improve the user experience by standardizing the
enablement process to make it more efficient.

"By using TESI, FX market participants can change pricing
streams, map accounts, authorize new instruments or even
suspend clients for trading, and a message will be
automatically distributed to all relevant parties using a
standard protocol," he says.

Market efficiency

In terms of market efficiency, TESI will automate the
buy-side firm enablement request between trading venues and
banks, creating operational efficiencies for both sides and
thus reducing costs and bringing tighter integration and
controls to the FX market, says Jack Utley, global head of
electronic client solutions at BNP Paribas and a TESI board
member.

"In the wake of increased regulatory checks at both the
account and user level since
Dodd Frank, EMIR and Mifid II, this kind of automation is a
must to remain relevant," he says.

Like all transformational ideas, it will take
time
for the benefits to be realized and for the
wider strategic implications to be
understood

Jack Utley

However, Utley admits the initiative has so far had minimal
impact on FX market efficiency.

"It is still largely in the adoption phase, both with the
venues and the sell side," he says. "Like all transformational
ideas, it will take time for the benefits to be realized and
for the wider strategic implications to be understood."

Utley says BNP Paribas – along with other member
banks of the TESI committee – is pushing adoption with
the FX venues in 2015 and plans to deliver its first
TESI-enabled interfaces in the second half of this year.

Lower costs

Lower operating costs for the sell side and the venues
should ultimately result in a better-value service for the
customer, he continues, adding it is difficult to say whether
or not this will translate into reduced brokerage costs or
margins.

"What customers should notice is improved turnaround times
when they request access for new users or for the mapping of
additional funds," says Utley. "We are driving the adoption of
TESI to bring a better level of service to our clients and
ultimately a tighter level of control around accessing our
products electronically.

"As we straight-through process our enablement process, we
aim to deliver real-time access for end-users and reduce errors
in the human-mapping process."

Paul Tivnann, global head of FX and commodity electronic
trading at Bloomberg, observes that TESI has produced a set of
standards to allow FX liquidity providers to centrally manage
client configuration and on-boarding details in their
respective internal systems, and push those updates to the
trading venues electronically via APIs.

"Currently, liquidity providers use on-boarding tools
provided by each trading venue to manage client configuration,
including the type of liquidity and account mappings," he
says.

"From that perspective, an initiative such as TESI has
certainly introduced client on-boarding efficiencies and
reduced the possibility of human errors and risk associated
with bank on-boarding staff making a mistake."

When asked whether TESI has produced any improvements for
users in terms of lower costs, for example, Tivnann states the
main improvements are focused around operational processes and
risk.

"The challenge is that liquidity platforms now need to offer
access to their on-boarding via electronic APIs based on TESI
standard and banks need the right code to implement those
APIs," he says.

As a result, a large-scale implementation process such as
this can take a considerable investment in time and resource to
realize cost reduction and efficiency objectives, concludes
Tivnann.

"In addition, investment on the operational side is often
secondary to addressing pricing and liquidity issues for many
sell-side institutions," he says.

"This, coupled with the fact the improvements will be
implemented on a venue-by-venue basis, means the industry will
take some time to fully adopt the process and realize the cost
benefits."

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